2018 NAREIT REITWorld San Francisco November 7-8, 2018

Transcription

1 2018 NAREIT REITWorld San Francisco November 7-8, 2018

2 Forward-Looking Statement This slide presentation contains statements that constitute forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934 as amended by the Private Securities Litigation Reform Act of These forward-looking statements include, among others, our statements regarding (1) strategic initiatives with respect to our assets, operations and capital and (2) the assumptions underlying our expectations. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. A number of important factors could cause actual results to differ materially from those contemplated by forward-looking statements in this slide presentation. Many of these factors are beyond our ability to control or predict. Factors that could cause actual results to differ materially from those contemplated in this slide presentation include the factors set forth in our filings with the Securities and Exchange Commission, including our annual report on Form10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. We believe these forward-looking statements are reasonable, however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. We do not assume any obligation to update any forward-looking statements as a result of new information or future developments or otherwise. Certain of the financial measures appearing in this slide presentation are or may be considered to be non- GAAP financial measures. Management believes that these non-gaap financial measures provide additional appropriate measures of our operating results. While we believe these non-gaap financial measures are useful in evaluating our company, the information should be considered supplemental in nature and not a substitute for the information prepared in accordance with GAAP. We have provided for your reference supplemental financial disclosure for these measures, including the most directly comparable GAAP measure and an associated reconciliation in the appendix to this presentation as well as in our most recent quarter supplemental report and earnings release, the latter two of which are available on our website at Our most recent quarter supplemental report also includes the information necessary to recalculate certain operational ratios and ratios of financial position. The calculation of these non-gaap measures may differ from the methodology used by other REITs, and therefore, may not be comparable. 2

3 Contents Who We Are Why Duke Realty 4 Key Business Drivers 6 Asset Strategy Operating Portfolio 13 Development 19 Acquisitions 28 Operating Strategy 31 Capital Strategy 36 Corporate Responsibility 38 Why Duke Realty 43 Appendix New Lease Accounting Standard 47 3

4 Who We Are Largest pure play domestic-only industrial REIT Founded 1972, IPO 1993; enterprise value ~$13 billion Member of S&P 500 Index eport, Perth Amboy, New Jersey Turnpike Exit 10 Submarket (3 buildings totaling 1.3 million SF) 514 modern facilities; 152 million Sq Ft 20 major U.S. logistics markets; 1,000 Customers Baa1/BBB+ credit ratings; very strong corporate governance WHO WE ARE 4

5 The Duke Realty Advantage > 45 YEARS of operating and development experience as a key foundation of long term company growth; trusted advisors to our clients, 20 to 30 year relationships with many customers MODERN LOGISTICS FACILITIES IN TIER 1 MARKETS newer facilities highly attractive to the supply chain needs of leading e-commerce and traditional distribution customers located in major MSA s and key trucking, rail, air cargo and shipping corridors GROWING NOI & CASH FLOW (AFFO) STREAM with contractual rent escalations; capturing continued strong market rent growth with increasing rental rates on rollover; low capex and highly occupied development project deliveries FUNDING CAPACITY, BALANCE SHEET & GROWING DIVIDEND over $1 billion of dry powder for growth opportunities within BBB+ credit rating parameters; continuous capital recycling by culling bottom of portfolio; in a stable-to-growing economic environment, expectations of strong AFFO growth in high single digits that correlates to similar dividend growth prospects WHO WE ARE 5

6 KEY INDUSTRIAL BUSINESS DRIVERS & STATE OF THE MARKET 6

7 Demand: Macroeconomic Indicators / Drivers Correlation (1) Growth Forecast Trend E-Commerce Sales 75% correlated to modern logistics facility (2) absorption 14-17% (3) Retail Sales (4) 45% % (4) Brick n Mortar Sales (4) GDP Inbound Port Traffic, Intermodal Rail, Retail Inventories, Industrial Production 60% % (4) 55% % (5) 60% % (6) (1) Per CoStar Portfolio Strategy (CPS) Leading Economic Indicators for logistics ; (2) Modern, logistics facility defined as >1995 age and 250K+ SF size; correlation is to square feet of absorption and assumes 1-4 quarter lead; (3) Forecasts per CPS; (4) Retail Sales forecasts represents Retail Sales excluding food services, Auto & Gas (A&G), as of 2q18 per CPS, Brick n Mortar Sales represents Retail ex-food, ex-a&g less E-comm; (5) 2018 GDP per September 2018 FOMC projections; (6) Represents 2018 forecast for industrial production, per Moody s Analytics. MARKET OVERVIEW 7

8 Demand: E-Commerce penetration and growth rate signal continued outsized growth E-comm sales capturing greater proportion of overall retail sales projections are a rise to 10-15% by 2020 E-comm sales growing approximately 15% annually ~ 4x to 5x rate of bricks and mortar E-commerce as a % of Total Retail Sales Growth Rate: E-commerce vs. in-store sales 4.4% 4.8%5.3%5.8% 2.9% 3.4%3.6%4.0% 7.2% 8.0%8.8% 6.4% 9.6% YOY % 25% 15% 5% -5% 15.2% E-COMMERCE 3.4% IN-STORE -15% Source: Retail sales (incl A&G) and Ecomm sales as of Q3 per Census Bureau; if exclude A&G, penetration rises from 9.5% to 14.0%. E-comm sales capture in 2020 per CoStar and Moody s. MARKET OVERVIEW 8

9 Demand: New industrial square footage needed to keep up with growth in e-commerce sales $1 billion of E- commerce sales requires approximately 1 million SF of fulfillment space (1) E-commerce sales require approximately 3 times the square footage of warehouse vs. bricks and mortar Projected E-comm sales (2) from 2018 through 2021 could drive approximately 335 million SF of incremental demand Incremental SF estimated from E-Comm per year (square feet millions) (1) Metric per CBRE, Cushman & Wakefield, NAIOP. (2) Assumes E-comm sales growth of 15%, which is consistent with the actual quarterly growth rate range of 15-17% MARKET OVERVIEW 9

10 Evolution of Amazon Distribution Network Growth Amazon s use of smaller delivery stations and Prime Now Hubs are growing, but are still a very small part of their distribution network. Growth opportunities are still far larger in their more traditional larger distribution and sortation centers. DRE s portfolio development platform and relationships are best positioned to capture growth opportunities. Properties Added (millions SF) Sources: Historical data and facility types per MWPVL & CoStar, 2018 = Q2 YTD + estimated under construction FULFILLMENT/DISTRIBUTION CENTER - typical range 500K - 1.0M SF SORTATION CENTER - typical size 200K - 500K SF DELIVERY STATION - typical size 50K - 200K SF PRIME NOW HUB - typical size 25K - 50K SF MARKET OVERVIEW 10

11 Fundamentals: Supply in better shape than last cycle, supported by stronger occupancy and rent growth backdrop Under Construction (MSF)* Market Rent Growth (Y/Y)* 2.9% 2.7% -0.4% -4.2% -2.7% 0.0% UC % of Stock 2.0% 3.8% 5.2% 6.4% 6.8% 6.6% 5.9% Under Construction as % of Stock* 4% 3% 2% 1% 0% Total Under Construction as % of Stock at ~1.8% manageable with strong overall fundamentals; and slightly decelerating + Vacancy Rates today at ~4.3% are 370 basis points lower than last cycle low = Stronger Rent Growth this cycle Source: CoStar s (CPS) all industrial *National index comprising 54 major Core Based Statistical Areas (CBSAs) as defined by U.S.OMB. U/C is through latest available quarterly period (2q18); Rent Growth current year is a CPS forecast. Current vacancy rate comprises the estimates from CBRE and CPS (as of 3q18) MARKET OVERVIEW 11

12 Industrial Sector Advantage: Why Duke Long Realty? term growth expected to significantly outperform other major property sectors Industrial Sector Other Major Sectors 4.5% 4.5% 4.3% 4.2% 4.0% 3.6% 1.3% 2.3% 1.5% 2.1% 1.8% 1.5% E 2019E 2020E 2021E 2022E Source: Green Street Advisors, as of 8/27/2018, on a wtd avg basis and includes PSB. Other Major Sectors comprises Office, Apartments and Retail. Data updated Feb and August of each year. OPERATIONS 12

13 17791 Perris Boulevard (Deckers Outdoor Corp), Inland Empire East Submarket ASSET STRATEGY OPERATING PORTFOLIO 13

14 Portfolio Geography Diversified in 20 major logistics markets Growth focus in Tier 1 markets 58% Tier 1 market exposure Seattle Minneapolis-St. Paul Eastern/Central Pennsylvania Northern California Chicago Indianapolis St. Louis Columbus Cincinnati New Jersey Washington DC/ Baltimore Southern California Nashville Atlanta Raleigh Dallas Savannah Houston RELIABLE. Central ANSWERS. Florida South Florida Concentration by NAV < $350MM $350MM $599MM $600MM $999MM > $1B Note: Cap rate estimates for NAV per CBRE semi-annual cap rate survey plus an adjustment factor per DRE relative portfolio quality by market. Tier 1 markets = Chicago, N. and S. California, Atlanta, New Jersey, Dallas, South Florida, Eastern PA and Seattle. PORTFOLIO 14

15 Industrial Best in Class Portfolio Peers DRE Average Bldg Size Comparison (sf per building in 000 s) peer avg Average Building Age (in years) STAG FR PLD EGP LPT DRE 32 + Clear Height % of Portfolio (as % of each data set SF) % of Total Absorption represented by 32 + Clear Height (as % of CoStar54 total inventory) 63% 30% 18% 67% 56% 32 + CLEAR HEIGHT DRIVING MAJORITY OF ABSORPTION GROWTH, contributing to strong leasing and development opportunities. DUKE REALTY PLATFORM BEST POSITIONED Industrial Peers include EGP, FR, LPT, PLD, and STAG. Per CoStar October 2018; DRE 3Q18 actual. PORTFOLIO 15

16 Modern, Big Box Facilities Producing Strong Rent Growth and Low Capex... Drives AFFO Growth Duke Realty Renewal Rent Growth by Building Size ( ) Duke Realty Average TIs/LCs (as % of Net Effective Rent*) 15% 15% 12% 12% 12% 12% 11% 12% <100K SF 100K-500K SF >500K SF Total <100K SF 100K-500K SF Older than or Newer >500K SF Total National Average Rent By Age * 20.0% $4.53 $5.44 higher rents $0.15 * Net Effective Rent ( NER ) is the total rent excluding expense reimbursements collected over the life of a lease. Capex comprises second generation TI s and LC s. ( ) Duke Realty Average Building Improvements ** -- Size Stratification Age Stratification -- $0.07 $0.06 (per square foot) $0.09 $0.14 $0.06 Source: CoStar Portfolio Strategy *Comprises 38 Core Based Statistical Areas (CBSAs) as defined by the U.S. Office of Mgt & Budget where Duke owns logistics properties. Rent observations are weighted by SF at the building level, for bulk buildings of at least 150K SF. $0.02 $ Total ** Capital costs to maintain the quality and functionality of a building - primarily roof, HVAC, parking and truck court replacements. ( ) PORTFOLIO 16

17 Tenant Profile and Risk Management Rank Tenant Length of Relationship (years) AGLV % of Total AGLV 1 Amazon.com 11 $ % 2 UPS of America % 3 Wayfair Inc % 4 NFI Industries % 5 Floor & Décor % 6 Crate and Barrel % 7 Target % 8 Deckers % 9 Home Depot % 10 HD Supply Inc % Total $ % Note: AGLV = Annualized Gross Lease Value Food products 5% Publishing 2% Technology 3% Textiles 4% Consumer Services 6% Chemical Products 2% Wholesale Goods 10% Retail (2) 10% Health Services 3% Other (1) 3% Transportation 20% E-commerce 17% Manufactured Products 17% (1) Other includes gov t agencies, construction, financial services, utilities, and agriculture (2) Top Retail tenants by AGLV are: Floor & Décor, Target, Home Depot, Crate and Barrel, the Container Store, Walmart, Electrolux, Starbucks, Genuine Parts Co and Best Buy, in aggregate which represents 69% of total retail exposure. Strong Financial Review Protocols Due Diligence on prospective tenants Credit analysis reviews Rent reserve protocols Watch-lists Biannual market review meetings Proactive Asset Management Strong tenant relationships Regular physical inspections Aggressive accounts receivable control Operating expense & capital expenditure control Location strategy, standard facility build-outs and strong regional operations teams contribute to reduced risk on re-leasing space and maintaining long term functionality PORTFOLIO 17

18 Operating Platform Aligned with E-commerce Growth 17% of tenant base e-commerce oriented and growing 35% of development starts since 2013 e- commerce related 503,000 square feet average e- commerce lease size since 2013 PORTFOLIO 18

19 Legacy Commerce Center (Brownfield development), Linden, NJ ASSET STRATEGY DEVELOPMENT CAPABILITIES 19

20 Development Strategic Advantages > 45 YEARS of development experience STRATEGIC LAND 75% in Tier 1 markets and in total can support 30 million square feet of logistics development (including land options); Seasoned, local teams in every market to source new opportunities, with a focus on in-fill redevelopment 66% REPEAT BUSINESS since 2010 with national customers; growing track record in executing e-commerce facilities.development pipeline has averaged over 25% e- commerce related since 2016 INTERNAL TEAM provides competitive advantage in all aspects of development, including preconstruction and construction, to deliver lowest cost projects on schedule; enhances opportunities to win lower risk build-to-suits typically with major customers STRONG RISK MANAGEMENT policies in place to govern speculative exposure and development pipeline size DEVELOPMENT 20

21 Development Strategic Advantages Activity Since 2013 $3.4B investment and 128 development projects $820 million estimated value creation (1) 50% of projects build-to-suit; 55% of projects > 50% preleased Yields and profit margins of 6.6% and 24%, respectively (2) (1) Value creation uses market cap rates at delivery date, with cap rate sources per CBRE and internal records; (2) Based on initial stabilized cash yield. DEVELOPMENT 21

22 Recent Build-to-Suit Developments DEVELOPMENT 22

23 Select Recent Development Activity Chicago One spec development 183,000 SF 0% pre-leased Pennsylvania Two spec developments 1.8 million SF 0% pre-leased; currently 55% leased New Jersey Two spec developments 856,000 SF 0% pre-leased Southern California 2.3 million SF in five projects Two build-to-suits 33% pre-leased; currently 71% leased Indianapolis 1.7 million SF in four projects Two build-to-suits 55% pre-leased; currently 72% leased Columbus 2.1 million SF Two build-to-suits 100% pre-leased Atlanta Three spec developments 1.3 million SF 0% pre-leased Dallas 1.7 million SF in three projects One build-to-suit 78% pre-leased Houston 1.7 million SF in three projects One build-to-suit 68% pre-leased; currently 80% leased South Florida Two spec developments 313,000 SF 0% pre-leased; currently 88% leased DEVELOPMENT 23

24 Speculative Development: Proven Execution 49 speculative projects since 2013 Successful lease-up average stabilization < 6 months after inservice 14% average pre-leased at start; 85% leased at 9/30/2018 $1.1 Billion investment; 30% average margin DEVELOPMENT 24

25 In-Fill Redevelopment - Core Expertise 37 logistics projects 10.9 million square feet $1.0 billion investment ~ 30% avg. profit margin Example In-fill Redevelopment - Southern California, Inland Empire West submarket Santa Ana Ave 283,000 SF Ontario International Airport (6 Miles) In 2016 acquired 7-parcel, 12 acre tract of in-fill land in Fontana, CA, located one mile from I-10 and near Ontario International Airport. In late 2017 started construction of a speculative 283,000 square foot, 36 clear height logistics facility. Early in 2018 during the construction process, the SoCal operating team executed a lease for 100% of the square feet to Sub-Zero, Inc., for distribution of their high-end refrigerators and cooking appliances. Facility delivered Q3 2018, with stabilized yield in high 5% range, estimated profit margin 40%. Distance to (1 Mile) DEVELOPMENT 25

26 In-fill Redevelopments - Northern New Jersey Meadowlands Submarket Newark Submarket As part of the 2017 Bridge acquisition, DRE acquired the right to develop two land sites totaling 43 acres in prime in-fill last mile locations in Northern New Jersey Commenced development in early 2018 for a 36 and a 40 clear height facility, totaling 856,000 square feet, with delivery expected in 2019 The modern building features will be truly unique to their respective submarkets o In these two submarkets, only 35 of 2,020 facilities (1.7%) have > 30 clear height and built after 1997 RELIABLE. ANSWERS. DEVELOPMENT 26

27 Strong Relative Development Pipeline Total U.S. Pipeline Size Development Pipeline (in $ millions) % of Assets Pipeline Pre-leasing Track Record 3 Yr Avg Pre-lease Current Pre-lease $1, % 8.6% 10.00% 9.00% 8.00% 80% 60% 63% 3 Yr Avg % $854 $ % $ % $ % 6.00% 5.00% 40% 20% 35% peer 3 yr avg (excludes DRE) $0 PLD DRE LPT EGP FR 4.00% 0% PLD DRE LPT EGP FR Note: Pipeline size and pre-lease % only include domestic, industrial projects under development and exclude prestabilized in-service developments. Development as % of assets, defined as industrial pipeline divided by gross assets after add back of depreciation except for PLD which includes global pipeline and consolidated (global) gross assets (JV s at share) due to availability of information. Source: Q and historical company supplementals. DEVELOPMENT 27

28 1 Catherine Street, Teterboro, NJ, Meadowlands Submarket (156,000 SF) ASSET STRATEGY ACQUISITIONS 28

29 Acquisition Strategy MARKET focused on growth in Tier 1, primarily high barrier markets, such as Southern California, Northern New Jersey and South Florida PRODUCT Modern, class A logistics product and older product in strategic infill locations with potential for redevelopment INVESTMENT PROFILE PLATFORM Core, value add, or opportunistic Use acquisitions to build economies of scale and leverage regional operations and development platform in targeted markets RELATIONSHIPS Leverage relationships with brokers, principals and tenants to focus on both marketed and off-market transactions EFFICIENCY Internal due diligence teams and excellent access to capital allow for a highly efficient due diligence and funding process ACQUISITIONS 29

30 Portfolio Recycling Case Study Selective, Strategic & Long Term Accretive Select portfolio recycling Long term accretive Estimated IRR spread on acquisition exceeds disposition... with upside to long term rental rate growth Disposition Columbus, OH Proceeds: $233M o Portfolio: 4 bldgs, 3.8 msf, Avg Age - 6yrs o o o Occupancy: 100%, 7 yr. avg. term Location: ~15 miles West of Columbus, OH off of I-70 Notes: Bon-Ton Stores (20% of portfolio) defaulted on lease and vacated soon after closing Acquisition Miami, FL Acquisition Price: $176M o o o o Portfolio: 3 bldgs, 1.1 million sf, newly built Occupancy: 100%, 13 yr. avg. term Location: Close to I-75 & FL Turnpike, ~15 miles to Miami Airport, adjacent to DRE s 677,000 sf Miami Industrial Logistics Center Notes: ROFO on subsequent development in park; up to 8m sf ACQUISITIONS 30

31 AllPoints Midwest Building 3 (Walmart.com), Airport Submarket, Indianapolis, IN OPERATING STRATEGY 31

32 Exceptional Leasing Performance Record Occupancy and Balanced Supply-Demand Continues to Support Rent Growth Key Metrics Driving Performance (1) Stabilized Portfolio Occupancy (stabilized in-service assets) 98.5% 98.2% average stabilized occupancy 25% average GAAP rent growth 11% average cash rent growth 98.1% 97.8% 97.9% Q Drop in occupancy primarily from 2 speculative developments that were just placed into stabilized pool from being inservice > 1 year 8.5 years average lease term at signing 4.6% same property NOI growth 5.8 years average lease term remaining (in-service portfolio) (1) Statistics above YTD 2018 (unless otherwise noted); Rent growth and renewal metrics based on second generation leasing only. Average lease term includes first generation leases, typically new development starts. OPERATIONS 32

33 20% Near-Term NOI Growth Q3 Actual NOI (annualized) NOI Growth Upside ($ s in millions) DRE better positioned for overall NOI growth because of higher percentage of properties in nonsame property population with significant upside $21.3 $ % 2018 Mid-point guidance (escalators + rent growth + flat to -0.5% occupancy) $46.7 $ % growth upside to Stabilization 20.2% embedded near term total NOI growth upside from Q3 $51.4 $119.4 $591.1 Upside Existing Same Property NOI Non-Same Property NOI In-service Under Dev NOI (future 2018 & 2019; 58% of costs funded) Total NOI Occupancy DRE Q3 98.7% 82% 52% 93.7% - occupancy upside to stabilization (~96-98%) stabilized % % % Occupancy DRE 2Y Avg 98.0% Occupancy Peers Q3 97.3% Occupancy Peers 2Y Avg 96.9% DRE achieved peak sameproperty occupancy sooner than peers In-service NOI % - DRE Q3 80% 20% In-service NOI % - Peer Avg Q3 88% 12% DRE has much larger non-same property pool than peers with significant occupancy upside Peers = PLD,LPT,FR, EGP. NOI figures on a cash basis. Under Development NOI incorporates unfunded capital requirements to complete construction of facilities. OPERATIONS 33

34 Increasing Cash Flow and Dividend Growth ($ in millions) $306 Sp Div AFFO Special Dividend $330 $70 Sp Div $231 $241 $355 $258 $378 $277 $399 $294 $429 ~7.3% (1) Growth ~7.5% (2) Growth Normal Dividend Guidance mid-point AFFO/sh Growth 6.7% 5.2% 5.0% 3.8% 7.3% (1) Normal Div/sh Growth n/a 5.9% 5.6% 5.3% 5.8% AFFO Payout 71% 68% 69% 70% 69% (2) Wtd Avg Shares RELIABLE. ANSWERS. (1) 2018 AFFO approximates 2018 DRE Range of Estimates Growth in AFFO Share Adjusted, deriving to a growth mid-point of approximately 7.3%. (2) Dividend per share growth % per 4q18 declaration of $0.015/sh increase and on a forward run rate basis. AFFO Payout per share based on full year AFFO and Dividends. OPERATIONS 34

35 Superior Cash Flow to FFO Ratio Company AFFO/FFO Ratio (1) 3yr Avg DRE 89% FR 79% LPT 80% PLD (2) 81% EGP (3) 72% Peer Avg 78% DRE > Peers 11% (1) Three year average AFFO/Core FFO ratio computed on a share adjusted basis. (2) Removed disposition gains from AFFO. These are from land and development projects contributed to JV s or sold. (3) EGP does not report AFFO. EGP is current year consensus AFFO Median / FFO consensus mean. Source: First Call Duke s Superior Ability to Convert FFO to Cash Larger and better pre-leased development pipeline driving AFFO Growth (no capex for 10 years) Younger portfolio = less maintenance expenditures Lower lease rollover = less capital expenditures Focus on overall deal quality (incl. capex and incentives) not just rent growth OPERATIONS 35

36 Lockport / / (3 buildings, 803,000 SF), I-55 Submarket, Chicago, IL CAPITAL STRATEGY 36

37 Strong Credit Ratings Unsecured Debt $2,580 Capitalization (in $ millions at 9/30/18, excludes unconsolidated JV debt) Secured debt $81 Moody s Baa1 ( s t a b l e o u t l o o k ) S&P BBB+ ( s t a b l e o u t l o o k ) Common Equity at market value $10,259 20% 1% 79% Debt Maturities $1.2 billion line of credit with a 2022 maturity. Borrowing rate currently ~ 3.3%. Leverage levels and liquidity / borrowing capacity provides dry powder for significant growth. o o Availability to fund future growth of approximately $1.0 $1.3 billion without equity, while still maintaining leverage metrics within current ratings level. Generating approximately $130 million of cash flow annually to reinvest. CAPITAL 37

38 AllPoints Midwest Building 3 (Walmart.com), Airport Submarket, Indianapolis, IN CORPORATE RESPONSIBILITY 38

39 Deep Rooted Approach to Corporate Responsibility As part of our vision to continually set the standard for maximizing stakeholder value, Duke Realty has had a long standing commitment to sustainable practices in environmental, social and corporate governance (ESG) initiatives Environmental We implement sustainable and customer-oriented best practices in development and operations to mitigate the impact to the environment and reduce overall corporate risk. First LEED facility delivered in emblematic of our long-standing commitment. Social We build and cultivate strong relationships with our stakeholders and the communities in which we do business. Community service, wellness and diversity and inclusion have been part of culture for over 15 years. Wellness program reduces turnover and creates G&A savings. These social oriented programs enhance team satisfaction and create trust within the community. Governance We conduct our business in the highest ethical manner and advocate for transparency. Majority independent board with lead director since 2002, directors elected annually. Women on board of directors since ESG / SUSTAINABILITY 39

40 Safeguarding the Environment 58 LEED-certified projects delivered since LEED- Accredited Professionals New member in 2018 committed to continuous improvements in ESG efforts 80% of properties have high-efficiency lighting 18.6M kwh saved for tenants in lighting retrofits Tenant engagement initiative and energy performance monitoring Waste reduction through repurposing of redevelopment site materials* Before After * See annual corporate responsibility reports for in depth case studies and metrics ESG / SUSTAINABILITY 40

41 Socially Responsible Our Associates 19% women in upper management 85% associate participation in wellness program Our Partners $245 million small business and diverse supplier spend 52% of spend to small or diverse businesses Our Community 10,800 total hours volunteering $500K in corporate giving to local organizations Gender Diversity Index Note: Figures represent 2017 activities. ESG / SUSTAINABILITY 41

42 Committed to Governance Board Structure & Shareholder Rights 92% independent board members Over 20% of executives and board members are women Long-term shareholder proxy access Lead director and annual director elections since 2002 Audit & Risk Oversight Internal audit department reporting directly to board Annual Code of Conduct associate training and board affirmation Prudent capital management guidelines to mitigate risk and exposure ISS Governance Quality Score of 3 DRE has ranked on average in top 15% of governance rankings since 2003 ESG / SUSTAINABILITY 42

43 Freeport IX, DFW submarket, Dallas, TX WHY DUKE REALTY? 43

44 Why Duke Realty? Attractive Yield, Payout Ratio and Relative Valuation Dividend Yield Price / AFFO 2018E 5.3% % 2.9% 3.8% 2.8% 2.8% 2.4% 3.1% = Peer Avg 2.0% = Peer Avg 15.5 Notes/Source: Dividend rate is most recent declared regular quarterly dividend on an annualized basis. Notes: AFFO estimate consensus median per S&P GMI; DRE per implied guidance mid-point. Peer median used to eliminate wide inconsistencies across analyst modeling of certain peer company gains from contributions, promotes, etc. AFFO payout ratio Premium / (Discount) to NAV 68.6% 70.1% 82.8% 65.5% 85.1% 89.2% 83.3% 77% = Peer Avg 72.9% -5.8% 2.1% -5.3% 9.3% 2.5% -1.6% = Peer 2.1% Avg -7.7% -14.7% Notes/Source: AFFO estimate is latest 2018 consensus median per S&P GMI; DRE per (implied, share-adjusted) guidance mid-point. Peer Median used to eliminate wide inconsistencies across analyst modeling of certain peer company gains from contributions, promotes, etc. Dividend is MRQ annualized. Source: Green Street for DRE, PLD, LPT, FR & EGP. S&P GMI Consensus for others. S&P GMI captures approximately 70% of street analyst coverage. Norte: All share price and estimates data as of 11/1/2018. WHY DUKE REALTY 44

45 Why Duke Realty? Why Duke Realty? Superior Asset Quality Youngest portfolio in industry and 286,000 square foot average building size produces lower capex, lower turnover, and higher credit tenants including fast growing e-commerce customers Benefit from tenant flight to quality in down cycle, more cash flow resilience Industry Leading Management Team 45 Year Development Track Record of Creating Value Highly renowned executive team with proven success; vertically integrated platform with deep customer relationships Industrial development starts have averaged >$550 million since 2013 and averaged 60% pre-leased. Estimated margins over 20% generating significant value creation. Strategic land bank and land acquisitions fuels long term NAV growth potential Best in Class Balance Sheet Lowest Debt/EBITDA ratio in sector Excellent access to capital; emphasis on self-funding Over $1 Billion of Dry Powder to support future growth Consistent Cash Flow Growth 6.1% CAGR in AFFO for last 6 years with strong portfolio dynamics to drive continued growth Significant portfolio repositioning and corresponding FFO dilution now in rear view mirror; normalized growth now occurring in 2H Implied 2H 2018 FFO growth per guidance range of 15% over 2H 2017 (at mid-point). Low Dividend Payout Ratio with Dividend Increases Dividend increases last four years (5.9%, 5.6%, 5.3% and 7.5%, respectively) and positioned for future increases WHY DUKE REALTY 45

46 2018 Range of Estimates (dollars in millions except per share amounts) Revised October 24, 2018 Metrics 2017 Actual 2018 YTD Range of Estimates Pessimistic Optimistic Key Assumptions Net Income per Share Attributable to Common Shareholders - Diluted $4.56 $0.89 $1.02 $ Previous guidance of $0.97 to $ Lower gains on property sales compared to NAREIT FFO per Share Attributable to Common Shareholders - Diluted Core FFO per Share Attributable to Common Shareholders - Diluted $1.27 $1.01 $1.33 $ Previous guidance of $1.29 to $ Includes net gains on land sales. $1.24 $0.98 $1.31 $ Previous guidance of $1.29 to $ Lease up of new development and acquisitions. - Strong rent growth. - Minimal downtime on expirations. Growth in AFFO - Share Adjusted 3.8% 3.4% 5.5% 9.1% - Previous guidance of 4.5% to 10.0%. - Driven by same factors impacting Core FFO. Average Percentage Leased (stabilized portfolio) Average Percentage Leased (In-service portfolio) 98.1% 98.2% 97.9% 98.7% - Immediate backflills on many terminations. - Lease up of new development and acquisitions. 96.3% 96.9% 96.5% 97.3% - Lease up of speculative development and acquisitions sooner than expected. Same Property NOI Growth (1) 3.2% 4.6% 4.2% 4.8% - Previous guidance of 3.5% to 4.5%. - Continued solid rent growth expected, embedded lease escalators. Building Acquisitions (Duke share) Building Dispositions (Duke share) $997 $210 $200 $300 - Previous guidance of $100 to $ Focused on high barrier markets. $3,095 $480 $500 $600 - Previous guidance of $470 to $ Data centers and Midwest non-strategic industrial. Land Sale Proceeds $58 $7 $10 $20 - Non-strategic inventory is shrinking. Development Starts (JVs at 100%) $866 $758 $750 $950 - Significant number of BTS projects. - Speculative starts in targeted growth markets. Service Operations Income $5 $5 $5 $7 - Previous guidance of $2 to $5. - Joint venture development. General & Administrative Expense $55 $43 $57 $53 - Stable overhead levels. Effective Leverage (Gross Book 29% 30% 33% 29% - Reflects short-term impact of medical office properties disposition. Basis) Fixed Charge Coverage (TTM) 4.5X 4.9X 4.5x 5.0x - Reflects impact of unstabilized development and acquisitions. Net Debt to Core EBITDA (TTM) 4.5X 4.8X 5.3X 4.8X - Reflects short-term impact of medical office properties disposition. - Increase to fund development. - Maintain Baa1/BBB+ ratings. Note: Bolded estimates represent current quarter changes. (1) 2017 actual Same Property NOI Growth was revised to reflect current methodology agreed to by DRE and other industrial REITs. 46

47 1 Catherine Street, Teterboro, NJ, Meadowlands Submarket (156,000 SF) APPENDIX NEW LEASE ACCOUNTING STANDARD 47

48 New Lease Accounting Standard A significant portion of currently capitalizable internal leasing costs will be expensed beginning January 1, 2019 when new leasing standard (ASC 842) is adopted Negative accounting impact for REIT s with in-house leasing platform majority of internal costs will now be expensed, whereas costs paid to outside service providers for the same services will generally be capitalized Impact to Duke Realty EPS and NAREIT FFO approximately $0.04/share annually Duke Realty to revise Core FFO Definition, results in no Core FFO or AFFO impact Duke Realty s internal leasing model results in economic cost savings and significant qualitative benefits compared to an outsourced model APPENDIX - LEASE ACCTG 48

49 Internal Leasing Costs Impact from New Accounting Standard The impact if ASC 842 would have been applied historically follows: Dollars in 000's, except per share amounts 12 Months ended Dec 31, Months ended Sept 30, 2018 Internal Leasing Costs Currently Capitalized (1) $19,119 $14,915 Less: Lease Incentive Bonus Payments (2) (5,269) (5,751) Additional Expense if ASC 842 had applied $13,850 $9,164 Per Share Impact to NAREIT FFO $0.04 $0.03 (1) As disclosed, respectively, on page 37 of our 2017 Form 10-K and page 38 of our September 30, 2018 Form 10-Q. (2) Compensation in the form of Lease Incentive Bonus that is specific to individual leases will still be capitalizable under ASC 842. Potential to penalize REITs that have scale and use less costly internal brokers versus more expensive external brokers Unclear how REITs will allocate costs between G&A and operating expense line items APPENDIX - LEASE ACCTG 49

50 Impact to Statement of Operations Proposed presentation of Core FFO and AFFO under ASC 842 is as follows: Duke Realty Corporation and Subsidiaries Condensed Consolidated Statement of Operations (Unaudited and in thousands, except per share amounts) Nine Months Ended September 30, 2018 As Presented Impact of New Standard Adjusted Rental, services and general contractor revenues: $ 677,013 $ 677,013 Expenses: Rental expenses, real estate taxes and depreciation (380,942) (380,942) General contractor and other services expenses (89,392) (89,392) Other operating activities: Equity in earnings of unconsolidated joint ventures 15,521 15,521 Gain on sale of properties and land 201, ,962 Other operating expenses (2,591) (2,591) Non-incremental costs related to successful leases (9,164) (9,164) General and administrative expenses (43,441) (43,441) 378,130 (9,164) 368,966 Other income (expenses): Interest and other income, net 13,079 13,079 Interest expense (62,137) (62,137) Income tax expense (9,495) (9,495) Income from continuing operations 319,577 (9,164) 310,413 Income from discontinued operations 3,265 3,265 Net income 322,842 (9,164) 313,678 Net income attributable to noncontrolling interests (3,009) 82 (2,927) Net income attributable to common shareholders $ 319,833 $ (9,082) $ 310,751 Per diluted Share $ 0.89 $ (0.03) $ 0.86 Transparent, single line item, presentation of incremental expense impact APPENDIX - LEASE ACCTG 50

51 Expanded definition of Core FFO to adjust for the impact of ASC 842: Duke Realty Corporation and Subsidiaries Condensed Summary of EPS, FFO and AFFO Nine Months Ended September 30, 2018 (Unaudited and in thousands, except per share amounts) Impact of New As Reported Standard Adjusted Net income attributable to common shareholders $ 319,833 $ (9,082) $ 310,751 Adjustments: Depreciation and amortization 238, ,863 Gains on depreciable property sales (196,589) (196,589) Noncontrolling interest share of adjustments (395) (395) NAREIT FFO attributable to common shareholders - basic 361,712 (9,082) 352,630 Noncontrolling interest in income of unitholders 3,002 (82) 2,920 Noncontrolling interest share of adjustments NAREIT FFO attributable to common shareholders - diluted $ 365,109 $ (9,164) $ 355,945 Gains on land sales (7,221) (7,221) Gains on involuntary conversion (1,397) (1,397) Loss on debt extinguishment Non-incremental costs related to successful leases 9,164 9,164 Core FFO attributable to common shareholders - diluted $ 356,731 $ 0 $ 356,731 Second generation leasing costs (including tenant broker commissions) (16,367) (16,367) Second generation tenant improvements and other capital expenditures (15,359) (15,359) Other non-cash adjustments 3,125 3,125 AFFO $ 328,130 $ 0 $ 328,130 No Core FFO or AFFO Impact Promotes consistency with prior periods and peers that outsource their leasing function Normalizes a modification to a long-standing accounting rule as economics remain unchanged Internal costs capitalizable under current accounting rules will continue to be included in postimplementation disclosures of leasing costs APPENDIX - LEASE ACCTG 45

52 Internalized Leasing vs. Outsourced Cost Comparison Dollars in 000's 12 Months ended Dec 31, Months ended Sept 30, 2018 Dollar Value of Leases Executed $865,000 $922,000 x commission % (approx listing broker standard) 2% 2% Outsourced Listing Broker Function (1) 17,300 18,440 Outsourced Legal Function (2) 4,405 2,740 Estimated Total Cost of Outsourcing $21,705 $21,180 Amounts Currently Capitalized (3) $19,119 $14,915 for Internal Leasing Function Cost Savings under Duke model $2,586 $6,265 (1) Estimated commissions paid if actual leases executed in these periods would have been outsourced to external listing brokers rather than maintaining an internal leasing team. (2) Based on an estimate of $25K per new lease and $10K per renewal lease. During the nine months ended 9/30/18, DRE executed 79 renewal leases and 78 new leases. During 2017, executed 93 renewal leases and 139 new leases. (3) As disclosed, respectively, on page 37 of our 2017 Form 10-K and page 38 of our September 30, 2018 Form 10-Q. Excludes amounts applicable to joint ventures. INTERNAL LEASING and support costs we currently capitalize ARE 10-15% LESS THAN what would be paid if functions outsourced. Estimated OUTSOURCE COSTS that would be CAPITALIZABLE under ASC 842. APPENDIX - LEASE ACCTG 52

53 Other Benefits of Internal Leasing Platform Contributes to Lower Capex National Platform Cross-market coordination enhances leasing solutions for customers Local expertise in 20 markets Strong customer, broker and municipality relationships... best in class reputations No conflicts of interest from external listing brokers Vertically integrated; Cross-department Synergies Collaborative internal leasing, in-house construction, in-house counsel and in-house property management team. Full integration provides superior customer service, enhances tenant retention and execution of backfilling vacancies In-house leasing provides new business synergies for build-to-suit development Total Capex as % of NOI lowest amongst industrial REIT s (2) Note: Data estimates from YE data points starting 2014 and including 6/30/18. (1)97.9% DRE vs 96.6% for Peers (PLD, FR, EGP & LPT-indus). (2)Tot Capex (LC s TI s, Def Maint) % of NOI DRE 10.7% versus 14.7% for Peers (PLD, FR, EGP, TRNO, REXR). Peers excluded if lacking disclosure. Better Occupancy DRE Stabilized, inservice Occupancy averages ~130bps higher (1) than peers since 2014 Lower Capex Peer relative LC s & Overall Capex ~ 27% higher than DRE APPENDIX - LEASE ACCTG 53

54 Definitions Supplemental Performance Measures Funds from Operations ( FFO ): FFO is computed in accordance with standards established by the National Association of Real Estate Investment Trusts ( NAREIT ). NAREIT defines FFO as net income (loss) excluding gains (losses) on sales of depreciable property and impairment charges related to depreciable real estate assets; plus real estate related depreciation and amortization, and after similar adjustments for unconsolidated joint ventures. We believe FFO to be most directly comparable to net income as defined by generally accepted accounting principles ( GAAP ). We believe that FFO should be examined in conjunction with net income (as defined by GAAP) as presented in the financial statements accompanying this release. FFO does not represent a measure of liquidity, nor is it indicative of funds available for our cash needs, including our ability to make cash distributions to shareholders. Core Funds from Operations ( Core FFO ): Core FFO is computed as FFO adjusted for certain items that are generally non-cash in nature and that materially distort the comparative measurement of company performance over time. The adjustments include gains on sale of undeveloped land, impairment charges not related to depreciable real estate assets, tax expenses or benefits related to (i) changes in deferred tax asset valuation allowances, (ii) changes in tax exposure accruals that were established as the result of the previous adoption of new accounting principles, or (iii) taxable income (loss) related to other items excluded from FFO or Core FFO (collectively referred to as other income tax items ), gains (losses) on debt transactions, gains (losses) on and related costs of acquisitions, gains on the sale of merchant buildings, gains (losses) from involuntary conversion related to weather events or natural disasters, promote income and charges related to major overhead restructuring activities, including severance. Although our calculation of Core FFO differs from NAREIT s definition of FFO and may not be comparable to that of other REITs and real estate companies, we believe it provides a meaningful supplemental measure of our operating performance. Adjusted Funds from Operations ( AFFO ): AFFO is a supplemental performance measure defined by the company as Core FFO (as defined above), less recurring building improvements and total second generation capital expenditures (the leasing of vacant space that had previously been under lease by the company is referred to as second generation lease activity) related to leases commencing during the reporting period, and adjusted for certain non-cash items including straight line rental income and expense, non-cash components of interest expense and stock compensation expense, and after similar adjustments for unconsolidated partnerships and joint ventures. EBITDA for Real Estate ("EBITDAre"): EBITDAre is defined by NAREIT as earnings, before interest, taxes, depreciation and amortization ("EBITDA") adjusted to exclude gains (losses) on sales of depreciable property, gains (losses) on change of control, impairment charges related to depreciable real estate assets and to include share of EBITDAre of unconsolidated joint ventures. Core EBITDA: Core EBITDA is defined by the Company as the EBITDAre, adjusted to exclude gains (losses) on land sales, impairment charges related to land, gains (losses) on and related costs of business combinations, capital transactions, promote income and severance charges related to major overhead restructuring activities. Core EBITDA is also adjusted from EBITDAre to include non-real estate asset related depreciation expense. Property Level Net Operating Income - Cash Basis ("PNOI"): PNOI is comprised of rental revenues from continuing operations less rental expenses and real estate taxes from continuing operations, along with adjustments to exclude the amortization of above and below market rents, amortization of lease concessions, lease termination fees as well as an adjustment to add back intercompany rent. PNOI, as we calculate it, may not be directly comparable to similarly titled, but differently calculated, measures for other REITs. We believe that PNOI is another useful supplemental performance measure, as it is an input in many REIT valuation models and it provides a means by which to evaluate the performance of the properties within our Rental Operations segments. Same Property Performance Net Operating Income ("SPNOI"): We evaluate the performance of our properties, including our share of properties we jointly control, on a "same property" basis, using PNOI with certain minor adjustments. The same property pool of properties is defined once a year at the beginning of the current calendar year, and includes buildings that were in the stabilized portfolio throughout both the current and prior calendar years in both periods. The same property pool is adjusted for dispositions subsequent to its initial establishment. Same property NOI excludes term fees. DEFINITIONS 54

55 FFO, Core FFO and AFFO (in thousands) Guidance Actual Actual Actual Actual Actual Net income attributable to common shareholders $ 385,220 $ 1,634,431 $ 312,143 $ 615,310 $ 204,893 $ 153,044 Add back: Noncontrolling interest in earnings of unitholders 3,616 15,176 3,089 6,404 2,627 2,094 Net Income Attributable to Common Shareholders-Diluted $ 388,836 $ 1,649,607 $ 315,232 $ 621,714 $ 207,520 $ 155,138 Reconciliation to Funds From Operations ("FFO") Net Income Attributable to Common Shareholders $ 385,220 $ 1,634,431 $ 312,143 $ 615,310 $ 204,893 $ 153,044 Adjustments: Depreciation and amortization 310, , , , , ,050 Joint Venture share of adjustments (2,406) (41,019) (40,405) 13,336 (56,422) (19,987) Gains on property sales, net of taxes and impairments (198,222) (1,448,080) (159,979) (651,941) (167,947) (192,421) Noncontrolling interest share of adjustments (991) 10,939 (1,157) 3,265 (2,030) (2,645) NAREIT FFO Attributable to Common Shareholders - Basic 494, , , , , ,041 Noncontrolling interest in income of unitholders 3,616 15,176 3,089 6,404 2,627 2,094 Noncontrolling interest share of adjustments 991 (10,939) 1,157 (3,265) 2,030 2,645 NAREIT FFO Attributable to Common Shareholders - Diluted $ 498,924 $ 459,980 $ 432,666 $ 303,955 $ 367,768 $ 351,780 Gain on land sales, including share of joint ventures (11,007) (12,329) (13,040) (35,054) (10,441) (9,547) Gain on non-depreciable property sale - joint venture (119) (6,156) Loss on debt extinguishment, including share of joint ventures 26,104 35,526 85, ,433 Gains on involuntary conversion - unconsolidated joint venture (3,897) Adjustments for redemption/repurchase of preferred shares 13,752 5,932 Land impairment charges, including joint ventures 3,622 14,299 41,637 33,700 3,777 Other income tax items (7,685) (641) Overhead restructuring charges 7,422 Promote income (20,007) (26,299) Acquisition-related activity (7,176) 8,499 1,099 3,093 Core FFO Attributable to Common Shareholders - Diluted $ 484,020 $ 449,566 $ 429,820 $ 412,172 $ 406,161 $ 363,827 Adjusted FFO Core FFO - Diluted $ 484,020 $ 449,566 $ 429,820 $ 412,172 $ 406,161 $ 363,827 Adjustments: Straight-line rental income and expense (25,660) (17,328) (17,107) (23,232) (22,170) (17,552) Amortization of above/below market rents and concessions (2,152) 1,201 1,526 3,659 5,348 9,054 Recurring capital expenditures (53,009) (59,051) (60,894) (61,693) (81,447) (82,799) Other 25,939 24,270 24,749 23,804 22,127 23,917 AFFO - Diluted $ 429,138 $ 398,658 $ 378,094 $ 354,710 $ 330,019 $ 296,447 Dividends Paid (Excluding Special Dividends) $ 294,233 $ 276,539 $ 257,822 $ 241,293 $ 231,178 $ 223,286 Special Dividends $ $ 305,628 $ $ 69,055 $ $ 55

56 SPNOI (unaudited and in thousands) Same Property Net Operating Income (Industrial Only) Three Months Ended September 30, 2018 September 30, 2017 Income from continuing operations before income taxes $ 52,405 $ 42,368 Share of property NOI from unconsolidated joint ventures 4,063 4,049 Income and expense items not allocated to segments (35,163) (19,623) Earnings from service operations (1,256) (1,138) Properties not included and other adjustments 98,202 85,605 Same Property NOI $ 118,251 $ 111,261 Percent Increase 6.3% Nine Months Ended September 30, 2018 September 30, 2017 Income from continuing operations before income taxes $ 329,072 $ 235,812 Share of same property NOI from unconsolidated joint ventures 12,016 11,990 Income and expense items not allocated to segments (100,489) (59,805) Earnings from service operations (5,160) (4,115) Properties not included and other adjustments 113, ,064 Same Property NOI $ 349,149 $ 333,946 Percent Increase 4.6% 56